The Credit Default Swap market contagion during recent crises: international evidence

Saker Sabkha, Christian de Peretti () and Dorra Hmaied
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Saker Sabkha: LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon
Christian de Peretti: ECL - École Centrale de Lyon - Université de Lyon, LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon
Dorra Hmaied: IHEC - Institut des hautes études commerciales (Carthage, Tunisie) - UCAR - Université de Carthage (Tunisie)

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Abstract: This paper analyzes Credit Default Swap spread dynamics to determine whether the sovereign Credit Default Swap market is subject to contagion effects. Analysis is performed on credit spreads data from 35 worldwide countries belonging to four different economic categories over a period from 2006 until 2014, covering the subprime crisis and the European sovereign debt crisis. A novel approach is proposed to estimate the Dynamic Conditional Correlations between CDS spreads using the AR(1)-FIEGARCH(1,d,1)-DCC model. Based on our findings, we put a slant on the financial market vulnerability, reinforced by contagion effects during the different phases of the crises. Furthermore, analysis of each country solely shows that contagion effects are sterner during the Eurozone crisis compared to the global financial crisis and that the level of exposure to crises differs across global markets and regions. Yet our approach provides evidences that crises spread to countries across the world regardless their economic status or geographical positions.

Date: 2018-06-05
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Published in Review of Quantitative Finance and Accounting, 2018, 53 (1), pp.1-46. ⟨10.1007/s11156-018-0741-6⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04875550

DOI: 10.1007/s11156-018-0741-6

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